U.S. Property Investors Now Favor Flipping Over Holding Assets

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According to Auction.com's February 2015 Real Estate Investor Activity Report, there is a growing preference by investors in the U.S. to flip properties over a hold-to-rent strategy, even as rental rates climb in many markets.

"It's interesting that so many investors continue to focus on flipping as opposed to buying properties to meet rental demand, even as rents continue to increase and home ownership levels are at their lowest point in over a decade," said Auction.com Executive Vice President Rick Sharga. "Flipping is especially strong in states like California, where home prices are too high for most investors to easily rent out a home at a profit. And there's an immediate opportunity for flippers to profit in states where there's simply not enough inventory of new and existing homes for sale to meet market demand."

Although Auction.com's findings for February 2015 favor flipping overall, investor intent varies considerably by the type of auction (live event versus online auction) and the investor profile. Survey respondents who indicated that they were making a one-time purchase preferred a hold-to-rent strategy, while respondents identifying themselves as full-time "real estate investors" and those indicating that they were working on behalf of another investor favored flipping.



Investors bidding at live events appear to be more likely to flip the properties they purchase based on survey responses collected in February, with respondents indicating a strong preference toward flipping over holding to rent in all states where Auction.com conducted live events.



Conversely, responses given at online auctions in February continued to show that investors bidding online are more likely to hold the properties they purchase. This was true even in the West and Northeast, the regions most likely to buck the renting trend due to higher purchase prices negatively impacting rental property returns.



Flipping was the clear preference among investors who purchase multiple properties per year. Less active investors (those indicating that they purchase one or fewer properties per year) continued to favor a hold-to-rent strategy, though not as strongly as in recent months.



"As employment improves, it's likely that the increasing cost of renting will incentivize more millennials to consider buying their first homes, which is good news for investors who are able to efficiently buy, rehab and sell properties in markets where inventory for entry level buyers is tight," Sharga noted. "But the demand might not be immediate. While increasing rents should be a stimulus to buy, the irony is that these rent hikes are also making it more difficult for potential buyers to set aside the money they need for down payments and making it harder for recent graduates to pay down student loans, which impacts their ability to qualify for a mortgage."